Will Tax Cut Drive Omnicom (OMC) This Earnings Season?

Omnicom Group Inc.OMC is scheduled to report first-quarter 2018 results on Apr 17, before the opening bell.

While we expect the company to witness top-line growth on the back of strategic business initiatives, higher organic growth and change in currency rates, lower U.S tax rates are likely to have a positive impact on Omnicom’s earnings.

We observe that shares of Omnicom have depreciated 15.1% over the past year against the S&P 500 Index’s gain of 13.8%.

Organic Growth & Favorable Currency Likely to Drive Top Line

The Zacks Consensus Estimate for revenues in the to-be-reported quarter is pegged at $3.61 billion, reflecting year-over-year increase of 0.7%. We expect the company to witness top-line growth on the back of higher organic growth and positive currency impacts.

The company expects foreign currency to have a positive impact of around 3-4% on first-quarter 2018 revenues. The guidance calls for more improvement than the 2.4% impact in fourth-quarter 2017.

In the fourth quarter, the company’s revenues had declined 1.5%. Organic growth was 1.6% in the quarter.

Strategic investments, organizational changes and important acquisitions as well as partnerships and expansion efforts coupled with business opportunities are other factors which will drive the company’s top-line growth. The company’s strong competitive position across advertising and marketing business is a positive. Increasing global presence acts as another key growth catalyst. The company’s efforts to stay technologically updated to meet varying customer and client demands in areas of digital media, data as well as analytics look impressive.

Tax Cut to Positively Impact Bottom Line

The new tax (Tax Cuts and Jobs Act, effective from December 2017), which reduced corporate tax rates significantly from 35% to 21%, will benefit Omnicom’s earnings in the to-be-reported quarter. The company projects 2018 effective tax rates to reduce 350-450 basis points (bps). Notably, the consensus estimate for current quarter earnings is pegged at $1.05 per share, reflecting a year-over-year growth of 8.3%.

Please note that according to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP. Stocks with a Zacks Rank #4 or 5 (Sell-rated) are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Omnicom has a Zacks Rank #3 and an Earnings ESP of 0.00%, a combination that makes surprise prediction difficult.

Stocks to Consider

Here are a few stocks from the broader Business Services sector that investors may consider, as our model shows that these have the right combination of elements to beat on earnings in first-quarter 2018:

CoreLogic, Inc. CLGX has an Earnings ESP of +5.38% and a Zacks Rank #2. The company is slated to report quarterly results on Apr 25.

FLEETCOR Technologies, Inc. FLT has an Earnings ESP of +0.44% and a Zacks Rank #2. The company is expected to report quarterly numbers on May 7.

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